There comes a time when after years of effort, you want to cash out on the work you have put into a business. In order for a sale to succeed there are several steps required.
As Roy Keane likes to say, fail to prepare, prepare to fail. Although he didn’t originate the saying, the Corkman’s wisdom should be observed when it comes to selling a business.
Owners looking to sell need to focus on making sure the business is in the best place for sale rather than overly fixating on when to sell. To do this, preparation is the true determinant of success irrespective of the when.
By focusing on where value is created and how your business can look best in that respect, timing won’t disappear as a factor, but it will be reduced substantially in importance.
RM Block
This is why getting the basics right is so important. Many deals falter due to mishaps with the core fundamentals that can reduce buyer confidence.
“The most damaging issues are often surprisingly basic,” says Adam Griffiths, corporate M&A partner and head of the Taylor Wessing Dublin office. “Poor document management means contracts are scattered across email inboxes and local files and, when signed copies cannot be provided or inconsistencies emerge, buyer confidence begins to erode. That often uncovers deeper risks, such as forgotten change-of-control clauses or poor IP [intellectual property] management that can directly impact value.”
Showing that you are prepared sends clear positive signals to prospective buyers. The greater the foundation, the more a business appears scalable. Remember, the buyer will want to gain value after the sale and having the i’s dotted and t’s crossed will be viewed as a positive indicator for growth potential.
“Operational readiness is consistently underestimated. Businesses that invest in systems, data hygiene, cybersecurity and scalable processes send a clear signal that they can grow efficiently under new ownership,” says Griffiths.
This isn’t just about comfort for the buyer; it’s about recognising value as they won’t have to do as much work fixing things to run smoothly post-acquisition.
That’s important when it comes to the ‘when’ of selling. The time you put into being ready to sell is far more important than the time you actually sell. You need to be realistic in this regard as matters such as regulatory approval or the views of other shareholders must be factored in.
“A 12-18 month runway is realistic. The most successful processes are those where the ‘house is in order’ well before engagement with potential bidders,” says Griffiths. “Regulatory requirements are another common blind spot, with FDI [foreign direct investment] and competition regimes becoming more interventionist, transactions that once closed in weeks can now take months.”
Preparation is crucial to the step that matters most to sellers, putting a price on the business. Put yourself in the shoes of the buyer, they are going to value certainty a lot higher than potential.
“The most common misconception is that valuation is driven solely by headline financials. Buyers now place significant weight on revenue visibility, leadership depth, customer concentration, operational resilience and IP defensibility,” says Griffiths.
This is where all the preparation work truly begins to pay off as buyers will certainly find a seller that has done their homework more attractive.
“In my experience, the biggest uplift starts with clean, well-presented financials that make earnings quality and revenue visibility easy to see,” says Tom Noonan, corporate finance director at PwC Ireland.
This is the beauty of a lengthy preparation phase. You can get to know your own business more as an asset than as something you have worked on. Preparation becomes a value creation phase in its own right. The earlier you start, the more it pays off.
“In my experience, the honest answer is to start earlier than you think. Treat preparation as value creation; the work you do months in advance pays off in price, speed and certainty,” says Laura Gilbride, deals partner at PwC Ireland.
This should paradoxically lead to the process itself feeling less exhausting on both sides of the deal.
“A clean, well-structured, efficiently run process is frequently as important as price when buyers decide whether to lean in.”
All of this work is enabling you, as the seller, to lessen the worst impacts of your emotional attachment to a business. Nobody will ever know your business like you do and having that attachment is a good thing, it has likely contributed to its success.
It can, however, blind sellers to what is needed for the sale of the business to succeed. Putting in the hard work helps them to think more like the buyer and adapt accordingly.
“Owners can overvalue product uniqueness while underestimating commercial ‘stickiness’. Buyers are often less interested in how innovative a product is and more focused on high switching costs and overall customer retention,” says Jan Fitzell, partner at Deloitte Advisory.
The preparation element isn’t only about ensuring the valuation of the business is improved, it’s also about reducing the stress on the seller during the sales process. While that process is underway, there’s the not so insignificant matter of still having to run the company’s day-to-day operation.
By having the due diligence process done over a manageable timeframe leading up to the sale, rather than once the sales process begins, it can ensure the leadership’s bandwidth isn’t overstretched.
“Due diligence during a sale process can be time consuming for management who also importantly need to remain focused on running the business,” says Colin Morgan, chief executive of Key Capital.
“Clear, reliable information that can readily be provided to buyers demonstrates confidence and enables transactions to be progressed more efficiently with greater certainty and fewer surprises.”
Who you leave behind after the sale matters as much as the what. Your flexibility in exiting following a sale is impacted by how deep your leadership team is and how dependent the company is on ownership at an executive level.
“If the objective of a sale is retirement and wanting a clean exit, having a strong senior management team across all business areas is key,” says Eimear O’Hare, director of BDO Dublin.
“If there is not a strong enough management team, the shareholders are limiting their choice of buyers, the valuation and the deal structure.”
If all of this sounds like a lot of work for something that might not even happen, consider the following. You may not be considering a sale, but you may get a cold approach that merits your attention.
If you have put the requisite work in, then you will know how fair an approach that is and how best to consider it. Being prepared for sale is, even when not planning for one, a matter of good governance in its own right.
“Even if not actively in the market, you never know when an offer lands that you can’t refuse. Being prepared is also good corporate governance for any business,” says O’Hare.
